banking themes in asia - ubi banca
TRANSCRIPT
Banking themes in Asia
Giorgio Gamba
Milan, 14 June 2018
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Key Messages 3
Innovation 5
China’s Liberalisation 8
Sustainable Finance 12
Belt and Road Initiative 18
Key Messages
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• In 2015 Asia accounted for 33% of Global GDP in 2025 - 38%
• In 2015 Asia accounted for 35% of Global Trade in 2025 - 39%
• Urban population in Asia is expected to grow to 44% by 2030 (+550m people)
• By 2030 Asia will account for 66% of the world’s middle class population
• By 2045 Asia GDP expected to be 26% higher than the combined GDP of Europe and N. America
‘The’ Growth Story
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1. Source: Oxford Economics
14 of Global 20 top trade corridors by 2030 will have Asia at either end1
USDbn
1.303 1.158
640 536 462 321 305 284 279 262 261 249 205 199
Chin
a-H
K
Chin
a-U
SA
Chin
a-K
ore
a
Chin
a-J
apan
Chin
a-V
ietn
am
Chin
a-
Germ
any
Chin
a-I
ndia
Austr
alia
-Chin
a
Japan-U
SA
Chin
a-
Mala
ysia
Chin
a-
Sin
gapore
India
-UA
E
Kore
a-U
SA
India
-US
A
2010-30
CAGR: 8% 8% 9% 5% 20% 6% 12% 9% 3% 12% 9% 10% 6% 11%
Innovation
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FinTech in Asia
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FinTech adoption percentages in ASP and major markets Rapid growth in China’s digital financial marketplace
14
23
32
32
37
37
40
42
52
69
Japan
Singapore
Hong Kong
South Korea
Australia
Spain
Brazil
UK
India
China
FinTech category adoption percentages
Money transfer
& payments
Financial
Planning
Savings &
Investments
Borrowing
Insurance
1 83% 22% 58% 46% 47%
2 72% 21% 39% 20% 43%
3 60% 20% 29% 15% 38%
3
24
2013 2017E
66
403
2013 2016
Mobile payments1
(USDtn)
Online AUM1
(USDbn)
1. Source: iResearch
2. Source: KPMG report – “The Pulse of FinTech Q4 2017”
15
358
2013 2017E
0
1
2013 2017
Online lending1
(USDbn)
Investment in FinTechs2
(USDbn)
+121% +93%
+74% +83% CAGR
Blockchain in Trade
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LCs relevant – USD2.5tn business of which 65% involves Asia
Example: Successful execution of a live trade finance transaction for international food and agriculture
conglomerate Cargill using R3's Corda DLT/blockchain platform (May 2018)
The transaction involved a bulk shipment of soybeans from Argentina, through Geneva's trading arm of Cargill, to Malaysia, through Cargill's Singapore
subsidiary as the purchaser. A Letter of Credit was issued using Corda by two separate banks acting on behalf of the Cargill entities.
The Letter of Credit transaction was an end-to-end trade between a buyer and a seller and their respective banking partners, completed on a single
shared application rather than multiple systems.
What’s the big deal?
• Real client, real shipment and real transaction
• Not a proof of concept, not a dummy transaction
• Not conducted on technology no-one else will ever adopt
Digitising Asia-
Pacific region's
trade-related
paperwork could
cut time it takes to
export goods
by up to
44%
Boost exports
by as much as
$257
billion per year
Cut costs
by up to
31%
HSBC processes
USD300bn worth of trade
every year and
100 million pieces of
unstructured
paper
China’s Liberalisation
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The Capital Markets
• China made significant progress in liberalizing foreign access to its capital markets since 2017
– China A-share
– In Jun17, MSCI decided to include China A-share in its Emerging Market Index. In Jun-Aug18, 236 stocks will form part of initial inclusion
– Upon full inclusion China allocation in EM Portfolio would be 40% up from 28% in 2017
– Bond Connect
– Launched Jul17. Allowing foreign investors to access the China interbank bond market (CIBM) through a simplified registration process and trading and custodian arrangement that are currently using offshore
• Capital account liberalisation is expected to gain further traction in 2018
• HSBC Fixed Income Research expects China’s sovereign bonds to be included in benchmark bond indices in 2H18
• Recent deregulation measures and positive sentiment will drive foreign portfolio inflows to China’s bond and equity markets
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Rising stock flow (Av. Daily turnover), HKDbn
0
10
20
30
40
50
nov-1
4
gen-1
5
mar-
15
mag-1
5
lug-1
5
set-
15
nov-1
5
gen-1
6
mar-
16
mag-1
6
lug-1
6
set-
16
nov-1
6
gen-1
7
mar-
17
mag-1
7
lug-1
7
set-
17
nov-1
7
gen-1
8
mar-
18
Shanghai-HK Stock Connect Southbound Buy & Sell
Shanghai-HK Stock Connect Northbound Buy & Sell
Shenzen-HK Stock Connect Southbound Buy & Sell
Shenzen-HK Stock Connect Northbound Buy & Sell
China’s capital markets have been gradually opening up…
Shanghai-Hong Kong
Stock Connect launched
Shenzhen-Hong Kong
Stock Connect launched
Bond Connect
launched
2011 2014 2015 2016 2017
RMB Qualified Institutional
Investor Scheme (RQFII)
launched
China Interbank Bond Market
(CIBM) Direct launched
Mutual Recognition of
Funds (MRF) launched
RMB in the World
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1. Source: SWIFT
2. Source: PBoC, HKMA, MAS, Central Bank of the Republic of China (Taiwan), City of London, CEIC, BIS, WFE, BOK, Bundesbank, Central Bank of Qatar, Central bank of Australia, Central Bank of Canada, HSBC
70
180
NA
200
300
360
400
Thailand
Malaysia
Taiwan
Australia
Singapore
South Korea
Hong Kong
Asia-Pacific
116
139
na
75
69
32
559 306
317 --
na 1
na 1
Americas
22
US
Canada
Chile na --
na 9
na 17
NA
NA
35 UAE
Qatar
MENA
na --
na --
NA
Europe
10
350
150
350
Hungary
France
Germany
Ireland
Luxembourg
ECB
Switzerland
UK 20
na
21
39
na
11
25 24
na 7
73 15
na --
na --
Via ECB
Via ECB
Via ECB
Via ECB
Brazil
Argentina
United Kingdom
Hungary
Switzerland
Turkey Ukraine
Mongolia
South Korea
Taiwan
Australia
New Zealand
Indonesia
Hong Kong
Thailand
Malaysia
Singapore
ECB
Pakistan
UAE
Albania
Iceland
Russia
Sri Lanka
Qatar
Canada
Luxembourg
France
Germany
Armenia
Suriname
South Africa
Chile
Tajikistan
Morocco Serbia
US
Zambia
Ireland
Egypt
Macau
RMB deposit (RMBbn)2 Territories with existing swap agreements Bilateral Swap Line (RMBbn)2
RQFII quota (RMBbn)2 Orange-highlight RMB clearing bank appointed
RMB Internationalisation
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2,9%
6,9%
10,4%
12,8%
3,3%
7,0%
10,0%
13,5%
4,2%
7,4%
9,1%
12,9%
6,1%
8,5%
12,1%
15,0%
0%
5%
10%
15%
End of this year 2020 2025 2030
2015 Survey results 2016 Survey results 2017 Survey results 2018 Survey results
The SDR Inclusion’s Importance Is More Than Just Symbolic
• The RMB was formally included in the IMF's Special Drawing Right (SDR) basket as the third largest component with effect from Oct16 joining the
USD, EUR, JPY and GBP with a 10.92% allocation
• The IMF's endorsement supports long-term demand for the RMB
• RMB is currently 1.23% of total holding
• Reserve Manager Trends Survey - 79 central banks, responsible for 54% of global reserves, completed the survey
• In 2018 survey RMB scored highest to question “which of following currencies appear more attractive than 12 months ago?”
Reserve managers see the RMB’s share of global reserves rising to 8.5% by 2020 What proportion of global reserves do you think will be invested in the Renminbi by?
Source: IMF. HSBC research, 27 Nov 2017, “Emerging Markets FX Roadmap’
Sustainable Finance
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0
2.000
4.000
6.000
8.000
10.000
1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016
China India S. Korea Other Asia
Sustainable Finance – why Asia matters?
• Asia is a major contributor to global emissions China #1; India #3; Korea #8
• Of the 67 countries we rank according to their vulnerability to climate change Asia has 5 of top 10 at risk including India
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Overall climate vulnerability (lower score = higher vulnerability)
Physical
impacts
Sensitivity to
extreme events
Energy
transition risk
Potential to
respond to
climate risks
Overall climate
vulnerability
Country Score Rank Score Rank Score Rank Score Rank Score Rank Market
Weights 25% 25% 25% 25%
India 3.84 17 1.67 7 4.34 20 2.54 10 3.10 1 EM
Pakistan 3.55 13 0.93 3 6.43 58 1.87 3 3.19 2 EM
Philippines 3.64 15 0.37 1 6.17 52 2.63 11 3.20 3 EM
Bangladesh 4.49 24 1.16 5 5.17 34 2.48 8 3.33 4 FM
Oman 2.89 7 2.09 9 2.85 4 5.62 45 3.36 5 FM
Sri Lanka 3.99 19 1.04 4 6.42 57 2.03 4 3.37 6 FM
Colombia 6.11 49 2.16 10 3.05 8 2.72 16 3.51 7 EM
Mexico 4.43 23 3.10 15 4.38 22 2.37 7 3.57 8 EM
Kenya 2.90 8 3.15 16 6.63 61 1.74 1 3.60 9 FM
S. Africa 3.80 16 4.39 29 3.90 14 2.63 12 3.68 10 EM
Emission in Asia have risen steadily
MtCO2
Source: BP Statistical Review
Note: DM = developed market, EM = emerging market, FM = frontier market
Source: HSBC
Country Pledge Target year Base year
Long term
pledge
Finance amount
USDbn (max) Comments
China Peak 2030 NA None Cut carbon intensity of GDP by 60-65% by 2030 from 2005
India NA 2030 2005 None 2,500.0 Cut emissions intensity of GDP by 33-35% by 2030 (2005); achieve 40% installed electricity
capacity from non-fossil fuel sources
S. Korea 37% 2030 BAU None - Unclear whether target includes land use change and forestry
Singapore Peak 2030 NA None Aims to cut emission intensity of GDP by 36% by 2030 (vs 2005)
Japan 26% 2030 2013 None Equivalent to 25.4% reduction from 2005 levels
Indonesia 29% 2030 BAU None Conditional target totals (41%), subject to agreement & external support
Vietnam 8% 2030 BAU None Conditional totals (25%) by 2030 by BAU. Carbon intensity of GDP could decline by 30% by 2030
from 2010 with external support
Philippines 70% 2030 BAU None Mitigation contribution conditional on intl. support
Thailand 20% 2030 BAU None Conditional total (25%) subject to financial and technical support
Malaysia NA 2030 2005 None Cut emissions intensity of GDP by 45% by 2030 (2005) - includes 35% unconditional and
additional 10% conditional targets
Mongolia 14% 2030 BAU None 6.9 Contingent upon gaining access to finance and new technology
Bangladesh 5% 2030 BAU None 69.0 Only covers power, transport, industry. Conditional total -15%
North Korea 8% 2030 BAU None Conditional: 40.25% through international support
Timor-Leste (East Timore) NA 2025 2020 None No target for emission reduction; has outlined commitment to reducing emissions in sectors
What is Asia doing about it?
• Material ‘Nationally Determined Contribution’ pledges at COP21
• China’s leadership
– Real life issue costing lives not just conceptual ‘climate change’
– “Blue waters and green hills are mountains of gold and silver”
– In 2013 air pollution captures public attention. New Environmental, Air and Water Pollution Laws passed in 2015, 2016, 2018
– In 2018 Green development elevated from third development concept to highest national importance ahead of Innovation, Coordination, Openness and Sharing
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Source: UNFCCC; HSBC
NDC submitted by Asian countries
Investment Needed
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40,5
13,5
9,0
15,0
9,0
16,5
103,5
Transport Water & sanitation
Telecoms Power and electricity transmission/ distribution
Primary energy
supply chain
Energy demand/ efficiency
2016-2030 Total
Global Infrastructure Investment needed in the next 15 years for a 66% chance of 2°C1 USD trillion, 2016-2030
1. OECD, IEA, Investing in Climate, Investment in Growth, JUL17; The OECD estimates that for infrastructure to be consistent with a 2°C 66 scenario, investment needs to amount to USD6.9tn per year in the next 15 years, an increase of about 10%
in total infrastructure investment from the reference estimate of USD6.3tn. Definition and source data are different to those shown in the BRI presentation
2. McKinsey, “Bridging Global Infrastructure Gaps” JUN16
3. HSBC estimation
16%
22%
5% 7% 2% 7%
6% 6%
29%
By region
Mainlan China
India
Other emerging Asia
Developed Asia
Africa
Latin America
Middle East
US and Canada
Europe
100%
• c.50% of total investment will be in Asia, especially emerging Asia
• Further areas of investment
– Energy
– Power/electricity
– Transport
• Mainland China’s BRI will further drive global investment and trade, especially in the Asia-Pacific region
Banking Revenue pool in next 15 years3:
>USD5tn
2
Transition Will Affect Many Industries and Create Opportunities
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Transition
• Risk of stranded assets
• Renewables will contribute at least 20% of primary energy supply by 20401
Business opportunities
• Portfolio diversification
– Transition from high-carbon to low-carbon assets
– USD350bn of investment in wind and solar needed to achieve the current market share in upstream O&G3
Financing solutions
• Corporate Lending
• M&A, DCM, ECM
• Trade Finance
Energy
• Decentralisation of power generation system
• Grid health (risk of overgeneration due to intermittency of renewable energy systems); smart grids
• Households to install more solar panels
• New infrastructure: energy storage to provide behind-the-meter solutions and control over-generation
• Personal Loan
• Corporate Lending
• Project Finance
• M&A, DCM, ECM
Utilities
• 'Green buildings'
• Regulatory requirements to increase energy efficiency
• Total spending on energy-efficient products and services in buildings was USD406bn in 20164
• Better insulation materials/technologies in new buildings
• Smart meters
• Trade Finance
• Mortgage/Personal Loan
• Corporate Lending
Real Estate
• Transition from Internal Combustion Engine (ICE) vehicles to Electric Vehicles (EV)
– Countries set target years for ban of new ICE sales (eg France/UK by 2040)
– 54% of annual global light duty vehicle sales will be EV by 20502
• Car makers to invest at least USD90bn in designing new EV models and increasing production5
• USD2.7tn investment on infrastructure needed for EV adoption6, ie building new charging points in petrol stations
• Corporate Lending
• Project Finance
• M&A, DCM, ECM
Transportation
1. Source: IEA World Energy Outlook 2017, New Policy Scenario projection, incl. hydro, bioenergy, wind, geothermal, solar photovoltaic, concentrated solar power, marine
2. BNEF, Long-Term Electric Vehicle Outlook 2017
3. Wood Mackenzie 2017
4. UN, Global Status Report 2017; IEA
5. Reuters Analysis, Jan18
6. Morgan Stanley Research
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Denotes HSBC as lead manager
1. HSBC Green, Social, Sustainability Bond database – based on Dealogic, CBI, Bloomberg, as of 11th Apr 2018 The data presented above is to the best of our knowledge and may not be fully representative of the SRI market
Development of Green, Social & Sustainability Bond Market
SRI Issuance (2006-2018YTD)1
2006
IFFIM: First ever SRI
benchmark
USD1bn 5yr
2007 2008 2009 2010 2011 2012
EIB: Inaugural
Environmental Themed
Bond
EUR600m 3yr
IFC: Inaugural SRI
bond
USD200m 4yr
IFFIM: Inaugural
AUD SRI bond
AUD400m 5yr
2013 2014 2015 2016 2017 2018
IFC: First SRI
benchmark
USD1bn 3yr
EDF issues the first
corporate Green Bond
EUR1.4bn 7yr
GDF Suez: broke largest
Green Bond record
EUR2.5bn 6yr & 12yr
EIB: First ever GBP SRI
Bond
GBP500m 6yr
AfDB: Inaugural/Largest
ever SEK Green Bond
SEK1bn 5yr Fixed & FRN
MIT: First higher
education Green
Bond
USD370m 24yr
IBRD: First FRN SRI
USD550m 18-mth
EIB: Largest ever SRI
climate-themed bond
Total outstanding
EUR2.25bn
Abengoa:
First high yield
Green Bond
USD300m
EIB: Inaugural USD CAB &
Longest dollar SRI bond
USD1bn 10yr
ICO: Inaugural SRI –
Social Bond
EUR1000m 3yr
KBN: First new Green
Bond of 2015 –
USD500m 10yr
Vestas: First Pure Play
Green Bond with a
General UOP definition
Agricultural Bank of
China: first international
green bond issued by a
Chinese FIG USD400m
4yr, USD500m 5yr and
CNH600m 3yr
TFL: Inaugural issue and
largest GBP Green Bond
from a Corporate
Rabobank: First issuer to
combined green and
sustainability framework
EUR 500m 5yr
TSKB: First CEEMEA
SRI Bond & Most
oversubscribed SRI
bond ever
USD300m 5yr
Bank of China:
Largest Green Bond &
First Green Covered
Bond
USD3.03bn 4 tranche &
USD500m 3yr
IFC: USD152m Forest
Bond
First bond to offer
repayment in carbon
credits
Republic of Poland:
EUR750m 5yr First Ever
Sovereign Green Bond
issued
TenneT: EUR1bn 7yr First
Green Hybrid
QBE: USD300m
5.5yr 1st Green
bond from
insurance
NWB: EUR2bn 7yr & 15yr
largest social bond to date
NAFIN: MXN4bn 5yr 1st
Social Bond from Mexico
and Latin America
Anglian Water:
GBP250m 8yr 1st
Sterling-denominated
Green bond from a
utility company
ICBC:
ICBC Luxemburg
EUR1.1bn 3yr, USD450m
3yr and USD400m 5yr.
First Green Bond aligned
with international and PRC
green standards
HSBC:
USD1bn 6yr Inaugural
Sustainable Development
Goal bond
0
20
40
60
80
100
120
140
160
180
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
USD EUR GBP Non G3 Aggregate totals and expected issuance going forwards
USDbn
Predictions for 2018FY issuance volume
HSBC Fixed Income Research USD140bn-180bn
TD Securities USD160bn
Climate Bonds Initiative USD250-300bn
S&P USD200bn
Bloomberg USD200bn
Moody’s USD250bn
• Development of instruments from Green bonds to social bonds, SDG bonds, green loans
• In China encouraging issuance through following measurers
– In Mar16 Shanghai and Shenzhen Stock Exchanges published the Notice on Green Bond Pilot Program, indicating that green bonds can be listed on stock exchanges in addition to the interbank bond market
– In Aug16 PBoC, MOF, NDRC, Ministry of Environmental Protection and other key arms of Government issued “Guidelines for Establishing the Green Financial System” which proposed measures to push the development of the green financial system (Aug-16)
– In Apr17 announced establishment of green channel to accelerate the approval of green bond issuance, and financial institutions encouraged to invest in green bonds
– In Jan18 the HKQAA launched Green Finance Certification Scheme
• In Mar17 Japan’s Ministry of Environment issued first green bond guidelines consistent with Green Bond Principles
• In Jan18 the Tokyo Stock Exchange launched a dedicated green and social bond segment
• In Mar17 MAS announced a Green Bond Grant scheme which will cover the costs of external reviews for green bond issuance
How is Sustainable Finance being encouraged?
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Belt and Road Initiative
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Asia’s Infrastructure Gap
• Developing Asia will need to invest USD26trn from 2016 to 2030, or USD1.7trn per year.
• Of this USD14.7bn will be from Power and USD8.4bn from Transport.
• The USD1.7trn annual estimate is more than double the USD750bn ADB estimated in 2009
• The infrastructure investment gap – the difference between investment needs and current investment levels – equals 2.4% of projected GDP for the 5-year period 2016 to 2020
• Outside of China, the gap for the remaining economies rises to higher than 5% of their projected GDP
ASEAN
• Almost 50% of the required Infrastructure spend will be from ASEAN
• Infrastructure spending as a percentage of GDP in ASEAN has been inching higher from 2012-16 but material gap remains
• Between 2016-2020 ASEAN is expected to more than double the USD355bn spent on Infra in 2011-15
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Source: Meeting Asia’s Infrastructure Needs; ADB 2017
What’s the big deal?
ASEAN 10:
Brunei, Cambodia, Indonesia,
Laos, Malaysia, Myanmar, the
Philippines, Singapore, Thailand
and Vietnam
ASEAN + 3:
Cooperation process with China,
Japan and The Republic of
Korea
ASEAN + 6:
Cooperation process & Free
Trade Area (FTA) with Australia,
China, India, Japan, New
Zealand and South Korea
Future expansion:
Hong Kong:
Implement free trade agreement
signed in 2017
RCEP:
Free trade agreement between
all countries in ASEAN + 6 0,5
0,7
0,7
0,7
0,8
0,9
2,7
Others
Vietnam
Singapore
Malaysia
Thailand
Philippines
Indonesia
Forecast Investment spend to 2030 USDtn2
Infrastructure investment By sub-region
61%
24%
12% 2% 0%
East Asia
South Asia
Southeast Asia
Central Asia
The Pacific
• Belt and Road Initiative is made up of “The Silk Road Economic Belt” and “The 21st Century Maritime Silk Road”
• Seeks to connect > 65 countries across Asia, Middle East, Africa and Europe, c.30% of global GDP and 63% of world population1
• Improving the global infrastructure and network connectivity can better facilitate international trade anddevelopment
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BRI – the scale
Rotterdam
Venice
Netherlands
Germany
Greece
Athens Mediterranean Sea
Kenya
Nairobi
Colombo
Sri Lanka
India
Black Sea
Kolkata
Bay of
Bengal
Kuala
Lumpur
Jakarta
Indonesia
Malaysia
South
China Sea
Haikou
Vietnam Guangzhou
Fuzhou East
China Sea
Yellow
Sea
Xi’an
China
Urumqi
Almaty
Bishkek
Samarkand
Uzbekistan
Dushanbe Tajikistan
Tehran Iran
Turkey
Istanbul
Moscow
Russia
Duisburg
Italy
Kazakhstan
Hanoi
Maritime Silk Road
Silk Road Economic Belt
4.4 Billion
people
63 % of world’s
population
29 % of
global GDP
2.5 Trillion. Expectation
of Annual trade
of countries
along the BRI
65 countries that
BRI connects
Committed funding by multinationals/policy banks3
Agency Capital
CDB 890
AIIB 100
SRF 55
NDB 50
CHEXIM 19
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1. Initial RMB10bn to promote cooperation between China's Northeast and Russia’s Far East.
NA - Not applicable.
Source: Belt and Road PortaI
Where’s the money coming from?
A multi-tier system to provide sustainable funding No one source of funding Public sector dominates infrastructure investment
in Asia As % of GDP
The ASEAN countries with the largest funding gaps
have the least developed corporate bonds % of GDP % of GDP
• Silk Road Fund
• China Development Bank
• Export and Import Bank of China
• Asia Infrastructure Investment Bank
• New Development Bank,
• Asian Development Bank
• Project financing
• Transactional banking (Trade, Cash
Management, FX)
• Advisory
• Match projects with investors who
have different requirements
• Infrastructure-related financial
instruments part of mainstream
asset allocation
• Private investors, including pension
and insurance fund managers
• Greater involvement by the private
sector will increase efficiencies
Public & Development Finance
Commercial Banks
Capital Markets
Note: UK for 2014, other countries for 2011-14 avg.
Source: ADB, HSBC
Action RMBbn
USDbn
equivalent Timeframe
Silk Road Fund capital 100 14.5 NA
Encouraging financial institutions overseas fund business in RMB to provide support for the BRI 300 43.5 NA
China-Russia Regional Cooperation Development Investment Fund1 100 14.5 NA
China Development Bank (CDB) will set up the B&R Multi-currency Special Lending Scheme for Infrastructure Development 100 14.5 NA
CDB will set up the B&R Multi-currency Special Lending Scheme for Industrial Cooperation 100 14.5 NA
CDB will set up the B&R Multi-currency Special Credit Lines for Overseas Financial Institutions 50 7.3 NA
EXIM will setup the B&R Multi-currency Special Lending Scheme 100 14.5 NA
EXIM will set up the B&R Multi-currency Special Lending Scheme for Infrastructure Development 30 4.4 NA
Assistance to developing countries 60 8.7 2017-20
RMB940bn USD136.5bn
0 2 4 6 8
25 ADB developing …
Indonesia
India
China
UK Public
Private
-50
50
150
250
0
10
20
30
40
50
60
MY SG IN TH CH PH IN VN
Corporate bonds Bank lending to corporates
Beijing’s increased financial support to the BRI announced during the BRF
Source: HSBC
ASEAN Infrastructure Overview
• (THA) Announced the Infrastructure Development Plan with an approved budget of THB2.4trn (USD75bn)
from 2015-2022
• (THA) Positive developments around PPP law (PISUA 2013) and the Cabinet's approval of the drat PPP
Strategic Plan in Feb 2015
• (MAL) Infrastructure is a pillar of the Government’s development plans.
• (SIN) Singapore continues to invest in infrastructure at well above average rates compared to other similarly
developed countries
• (SIN) 2018 Budget pushing SOEs to fund via GG Bonds not Grants
• (IDN) Transport is a key focus
• (IDN) Greater decentralisation of funding decision. Allocation to line ministries declined 15% yoy while
allocation to local governments increased 16% yoy and capital injection to SOEs increased 40% yoy
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Local competitive landscape Emphasis on infrastructure driven growth
• (THA) Experienced local construction sector which is dominated by government qualified contractors
• (THA) Foreign companies have typically participated in partnerships where specialized expertise is required or
as suppliers and subcontractors to local consortiums
• (MAL) Chinese companies have been successful in winning bids both on an independent and joint basis with
local companies
• (SIN) Highly competitive with experienced local operators/contractors and multinationals with regional base in
Singapore
• (SIN) Chinese construction SOEs have had success in winning contracts mostly in the civil construction/rail
and real estate sectors
• (IDN) Most projects are awarded by government ministries or SOE operators, eg ports (Pelindo I/II.III), airports
(Angkasa Pura), power (PLN). Infrastructure construction predominately handled by the public sector or top
construction SOEs (eg WIKA, PTPP, WSKT)
Key considerations and challenges
Considerations Challenges
• (THA) Positive policy developments including PPP act (2013) and Draft PPP Strategic Plan (2015)
• (THA) Slow economic recovery and upcoming elections provide an impetus to fast-track infrastructure delivery
• (THA) Liquid capital markets and banking sector
• (MAL) Track record of executing projects under both traditional and PPP schemes with high international
participation
• (MAL) Strong financial infrastructure with developed banking sector and capital markets
• (MAL) Key Islamic financing centre
• (MAL) Experienced local operators and construction companies
• (SIN) Position as regional financial and trading hub with highly sophisticated banking sector and capital
markets
• (IDN) Strong pipeline across all sectors
• (IDN) Track record of implementing power projects – under IPP and direct procurement
schemes – with international sponsors/financiers
• (IDN) Public/quasi-public bodies (PPP Unit, IIF, SMI) charged with facilitating private investment
• (THA) Largest projects in pipeline dependent on progress of bilateral negotiations
• (THA) Foreign Business Act: foreign owned corporates may require additional permits for certain industries,
capped ownership percentage
• (MAL) Ongoing challenges in commodities prices may lead to change in infrastructure budget
• (MAL) Potential foreign restrictions on acquisition of key assets and/or participation in key projects
• (MAL) FX/market risk
• (SIN) Shrinkage in private real estate market may intensify local competition for certain jobs, eg civil
construction, with downward pressure on margins
• (SIN) Increasing labour costs could contribute to compressed margins
• (IDN) Land acquisition remains challenging despite recent reforms
• (IDN) Challenging project planning and licensing process across multiple federal, state and
city officials
• (IDN) Easing of government guarantee for IPPs may limit the pool of potential international financiers
Sources: Public Debt Management Office, Ministry of Finance
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Infrastructure Project
Banking Opportunities
Clients’ needs / product opportunities over the Project’s life cycle
Th
e P
roje
ct’
s E
co
sys
tem
Project
procurers
Ministry of Finance (MoF)
Ministry of Transport (MoT)
Government Agencies
Central Bank
• Funding (loan / bonds) • Financial & structuring Advice • Hedging
Real Estate
Companies International & Local real estate
investors and builders
• Funding (loan / bonds) • Performance bonds • Trade financing • Working Capital
Lead
contractors Large International & local
Infrastructure companies
• Performance bonds • Receivable financing • Payable financing
• Working Capital • Hedging (FX)
Sub
Contractor
suppliers
Mid-size local Infrastructure
& logistics companies
• Performance bonds • Receivable financing • Working Capital
Local banks
Int’l & local depending on
markets / currency required
ProjectCo
Bidders /
Investors
International investors
partnering with local
large Company
Bidder A Bidder B Bidder C • Financial Advisory • Intro to local partner • Bid & Perf. Bonds
• Funding (loan / bonds) • Hedging (IRS, FX)
International banks’ scope
Project
South-East Asian railways – The international angle
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Sources: Related news clippings
Bangkok
Sanur
Jakarta
Singapore
Koh Phangan
Koh Samui
Nakhon Si Thammarat
Penang
Cameron Highlands
Kuala Lumpur
Cianjur
Yogyakarta
Malang
Mt. Bromo
Kalibaru
Perumtaran
Malaysia
Thailand
Australian engineering firm, John Holland, working on Malaysian Double
Tracking
British firm, Mott Macdonald, adviser on KL to Singapore HSR’s technical
and safety standards
Canadian firm - Bombardier Transportation – signed a strategic
agreement with China Railway Rolling Stock Corporation involving
support for several rail projects in ASEAN
The US, Jacobs Engineering was appointed Lead Consultant for the track
work design for the Klang Valley Mass Rapid Transit Line in Malaysia
French firm, Thales, supplying automatic fare collection system for
Bangkok Metro’s Blue Line extension
Siemens teaming up with Malaysian firm, George Kent, to bid for the KL to
Singapore HSR tender
US firm, AECOM, doing advanced engineering study for the Singapore
stretch of KL to Singapore HSR
India – expected to be USD5tn economy by 2025
• Challenges
– Banking sector stress
– Overleveraged private sector – limited capex
– Infrastructure bottlenecks
• Drivers
– FDI & Portfolio Investor reforms; growth in FDI, highest in EMs 2017 (USD43bn)
– Largest recipient of remittances globally (USD66bn)
– Acquisition plans global companies
– Digitization of corporate payments
– ‘Make in India’ initiative
• Opportunity
– Transaction banking focus – supply chain financing and cash management
– Inbound M&A
– Equity capital markets
– Digitisation - levels playing field
Other Key Markets
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Thank you
Milan, 14 June 2018
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